Profiting on 2005 calves Part I

Now is the time to think about generating the maximum possible profit from your 2005 calves. It begins by fully analyzing the production of your 2004 calves. According to the most recent North Dakota Farm Business Management (FBM) Record Summary, North Dakota beef cow herds generated an average of $190/cow in profit in the production of 2004 calves (Figure 1). In Figure 1, profit is defined as earned

Now is the time to think about generating the maximum possible profit from your 2005 calves. It begins by fully analyzing the production of your 2004 calves.

According to the most recent North Dakota Farm Business Management (FBM) Record Summary, North Dakota beef cow herds generated an average of $190/cow in profit in the production of 2004 calves (Figure 1).

In Figure 1, profit is defined as earned net income (ENI). A ranch family contributes three resources to the cow herd — unpaid family and operator labor, management, and equity capital. ENI measures the dollar value these three resources earned from beef cows.

Understand charges for these three resources aren't included in these herds' cost calculations. Instead, they are the collective bottom line residual claimant in these beef cow profit center analyses.

ENI is based on the assumption ranchers don't pay themselves for unpaid family labor, management or equity capital invested in the business. These ENI numbers are the bottom-line numbers for these North Dakota beef cow producers.

The North Dakota data also shows considerable variation between ranchers (Figure 2). Sorted by ENI, the high 20% generated $309/cow — 162% of the group average. The lowest 20% generated a $45/cow average — 24% of the average.

Over the next few months, we'll go through the process of comparing your numbers against these North Dakota benchmarks. We'll discuss the key production and economic factors you must measure from your herd. If your production and business records can't generate these numbers, you need to rethink your records process.

Herd performance data

The most common missed profit opportunity among my clients is low reproductive performance, as measured by percent calf crop weaned and/or pounds weaned/female exposed. According to Integrated Resource Management (IRM) Guidelines, both measurements must be based on females exposed to the bulls.

Let's look at some key production measures relative to the North Dakota FBM herds. The center group of FBM numbers in Figure 3 are benchmarks readers can use to analyze the reproductive performance of their beef cow herds.

The price reported in this summary is based on all calves sold. Actual weight sold, when compared to reported weaning weight, suggests some form of short preconditioning/marketing program.

I generated a calculated weaning price to have a calf price comparable to the IRM-Financial And Reproductive Management System analyses I use with my clients. The calculated price is the reported price adjusted back to actual weaning weight. With these two prices, an economic evaluation of preconditioning programs can be conducted.

Why can these North Dakota herds generate a $190 ENI, while many producers can't? Because they're capturing missed profit opportunities.

One could presume the Northern Plains is a low-cost region, given the reported summer pasture costs. These pasture costs are based on the going rental rate — not actual land ownership costs. But, my North Dakota FBM associates say these low costs might be due to the management level of these operators.

These 124 producers are members of the North Dakota Farm Business Management Association, a statewide adult education program sponsored by the North Dakota State Department of Education. The state hires specially trained business management specialists to work with farmer/rancher members, and focus specifically on business management training. Besides conducting yearlong management training, the specialists also provide in-depth, yearend analysis of members' total farm or ranch businesses.

Individual profit center analyses, such as the Figure 3 benchmarks, are an integral part of these yearend analyses prepared with FINPACK software. The software has a 30-year history and is supported by the University of Minnesota Center for Farm Financial Management (www.cffm.umn.edu). It's the best ranch analysis software available.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or[email protected].

Figure 2. North Dakota's 2004 Farm Business Management Herds

Per Cow

Item

Low 20%

Average

High 20%

Your Herd

Adjusted Gross Income1

$582

$637

$684

Pasture cost

$85.64

$81.72

$70.32

Winter feed costs

$189.07

$158.56

$136.61

Vet & medicine costs

$17.69

$14.50

$14.01

Livestock costs ($):

Supplies

11.63

9.68

9.53

Fuel & oil

14.23

13.29

10.66

Repairs

31.22

22.00

15.05

Custom hire

4.33

3.53

10.66

Livestock leases

4.76

1.67

2.29

Marketing

4.55

4.47

4.68

Operating interest

9.24

6.44

4.68

Total direct costs

$372

$316

$278

Overhead costs ($):

Hired labor

5.67

9.77

6.23

Farm insurance

11.26

8.82

5.90

Utilities

12.01

8.51

5.98

Interest

16.86

12.23

11.33

Machine & bldg. depreciation

18.45

17.84

17.98

Miscellaneous

16.24

10.67

7.00

Total overhead costs

$80.49

$67.84

$54.42

Replacement heifer costs2

$84.68

$63.55

Total costs/cow

$538

$447

$333

Earned net income/cow

$45

190

309

Cost to produce Cwt. of calf (UCOP)

103

81

58

Average weight of calves sold (lbs.)

588

588

619

Reported average price for all calves sold

$108.18

$113.41

$115.03

Suggested heifer price discount

$5.00

$5.00

$5.00

Suggested price for steers sold

$111

$116

$118

Suggested price for heifers sold

$106

$111

$113

Average weaning weight (lbs.)

528

559

591

Price slide at weight sold

-$11.40

-$12.00

-$9.00

Calculated steer price at weaning

$122

$128

$127

Lbs. weaned/exposed female

470

507

548

1Reported gross income with “transferred in” taken out.

2Set equal to the “transferred in” removed from gross income. The income effect is the same.